Homework LOREAL




CASE 24 • L’ORÉAL S.A.—2018 555

www.loreal.com, LRLCF

Headquartered in Clichy, France, just outside Paris, L’Oréal is the world’s largest beauty products company, with brands that include L’Oréal Paris and Maybelline (mass-market), Lancöme (luxury), and Redken and Matrix (salon). L’Oréal owns Dallas-based SkinCeuticals that conducts cosmetology and dermatology research. With more than 50 percent of sales generated outside Europe, L’Oréal has focused on acquiring brands globally. L’Oréal owns the American-based cosmetics retail brand Kiehl ‘s, which has over 250 retail stores worldwide.

L’Oréal is structured into four branches: l) L’Oréal Luxe, 2) Consumer Products, 3) Professional Products, and 4) Active Cosmetics. L’Oréal’s Luxury Products are sold in a variety of channels globally under such brands as Lancome, Diesel, Giorgio Armani, IT Cosmetics, and Urban Decay. Consumer Products, which are sold by retailers worldwide, are marketed under L’Oréal Paris, Garnier, Magic, Maybelline, African Beauty Brands, Essie, NYX, and Niely. The company’s Professional Products segment includes hair care products for use by professional hairdressers and sold in salons worldwide, including L’Oréal Professional, Kerastase, Redken, and Matrix. The firm’s Active Cosmetics division consists of products which are sold in healthcare outlets across the world, including pharmacies, drugstores, and medi-spas, under the brands SkinCeuticals, Vichy, La Roche Posay, Roger & Gallet, Sanoflore, and Cerave.

L’Oréal has a portfolio of over 30 international, diverse, and complementary brands which are sold across 140 countries. With sales amounting to 26 billion euros in 2017, L’Oréal employs 89,300 people worldwide, has 42 production plants worldwide, and 473 registered patents. The company’s operating income and net income in 2017 were 4.676 billion euros and 3.586 billion euros, respectively. L’Oréal sold The Body Shop in 2017. In March 2018, L’Oréal announced Pablo Tomeno Hernandez as the new face of the brand because “His hair is worth it.”

There is an opportunity for L’Oréal to acquire Avon Products, Inc. Three big investors in Avon (Shah Capital, Barington Capital, and NuOrion Partners) are pressing the company to seek a buyer. Avon’s CEO, Sheri McCoy stepped down as CEO on March 31, 2018. Avon’s stock price declined 50 percent in 2017 when hundreds of company stock prices increased 50 percent.


In 1907, Eugene Schueller, a young French chemist, working with La Cagoule, developed a hair dye formula called Auréale. Schueller formulated and manufactured his own products, which he then sold to Parisian hairdressers. In 1919, Schueller registered his company as the French Society of Inoffensive Tinctures for Hair, which became EOréal. The guiding principles of the company were research and innovation in the field of beauty. In 1920, L’Oréal employed three chemists. By 1950, the research teams were 100 strong: that number reached 1.000 bv 1984 and is nearly 2,000 today.

L’Oréal got its start in the hair color business. but the company soon branched out into other cleansing and beauty products. L’Oréal currently markets many thousands of individual products in all sectors of the beauty business: hair color, permanents, hair styling, body and skin care, cleansers, makeup. and fragrances. The company’s products are found in a wide variety of distribution channels. from hair salons and perfumeries to hyper- and supermarkets, health/ beauty outlets, pharmacies, and e-commerce. L’Oréal has six worldwide R&D centers located in Alllnay’. France: Chevilly. France: Clark. New Jersey: Kawasaki. Japan; Shanghai. China and Berkeley’ Heights, New Jersey.

In mid-2018, L’Oréal acquired the firm Pulp Riot, a professional haircolor brand that launched in June 2016 by David and Alexis Thurston in the United States. Headquartered in Los Angeles, Pulp Riot had sales of $11 million in 2017, with its largest distributor being SalonCentric in the USA. The CEO of Pulp Riot remains David Thurston. Also in mid-2018, L’Oréal acquired Nanda Co. Ltd, the Korean makeup and fashion company that has about 400 employees and operates in Korea, Japan, Hong Kong, Singapore, Malaysia, and Thailand. Nanda’s feature product is 3CE which comprises about 70 percent of their revenue and is really popular among Far Eastern millennials. Sometimes referred to as Stylenanda, Nanda was founded by Kim So-Hee in Seoul in 2004.


L’Oréal does not have a vision statement, but it has a statement of ambition, which is provided on the corporate website as follows (paraphrased): Our ambition for the coming years is to provide billions of consumers around the world with cosmetic products that meet the infinite diversity of their beauty needs and desires.

L’Oréal’s mission statement as provided on the corporate website states the following (paraphrased): Our business is beauty because beauty enables all individuals to express their personalities, gain self-confidence, and open up to others. Beauty is a language, is universal, is a science, and is a commitment—so we offer beauty to all.


As a Global Compact LEAD company, a signatory of the Women’s Empowerment Principles Initiative, and one of the 100 firms included in the Global Compact, L’Oréal has long been recognized for its leadership in sustainability. In 2017 alone, the company received numerous awards from top environmental and sustainability agencies. In 2017, the OECD (Organization for Economic Co-operation and Development) accepted two new methods developed by L’Oréal to assess skin and eye irritation without having to use animal testing. Also in 2017, the “Palmar&s de la féminisation des instances dirigeantes” organized by Ethics & Boards recognized L’Oréal ‘s commitment to gender and professional equality and with the Award for Gender Equality at Top Management Level.

L’Oréal was also recognized at the CDP Europe Awards in Brussels, receiving the best posSible score, an “A” rating, in each of the three fields involving combating climate change, sustainable water stewardship, and protecting forests. For several consecutive years, L’Oréal has ranked number I in all sectors by Vigeo Eiris including areas of social responsibility: human rights, human resources, environment, business behavior, corporate governance, and community involvement. L’Oréal also obtained first place in the world ranking by Equileap for gender equality.

Regarding sustainable development, Corporate Knights, a Global Responsible Investment Network, ranked L’Oréal in 2017 as the top performing global company and highest performing personal products company in the world. L’Oréal has received this distinction many times in the past, highlighting the company’s leadership in sustainability efforts, including cutting carbon emissions, enhancing water stewardship, and tackling deforesting within its supply chain.

Also in 2017, L’Oréal received the Transparency Grand Prix recognition for its Code of Ethics. Further, in 2017, U.S. Environmental Protection Agency (EPA) awarded L’Oréal the Green Power Partner of the Year Award in recognition of its overall green strategy. In 2018, L’Oréal was recognized by Ethisphere Institute, a global leader in defining ethical business practices, as one of the world’s most ethical companies. This made the ninth time the company received such recognition by Ethisphere.

Internal Issues

Organizational Structure

L’Oréal’s organizational chart is provided in Exhibit l. Note there is no COO, but perhaps Ms. Lavernos serves that role. Note the two strategic business units (SBUs): Professional Products and Consumer Products. Underneath these positions is a divisional-by-geographic region type structure. A potential problem with this design is that positions 10 through 14 would basically have two bosses, positions 8 and 9, violating the unity of command principle in management.

EXHIBIT 1 L’Oréal’s Top Executives and Organizational Chart

I . Jean-Paul Agon, Chairman and CEO

2. Laurent Attal, EVP Research and Innovation

3. Lucia Dumas, EVP Communications & Public Affairs

4. Nicolas Hieronimus, Deputy CEO

5. Barbara Lavernos, EVP Operations

6. Christian Mulliez, EVP and CFO

7. Lubomira Rochet. Chief Digital Officer

8. Nathalie Roos, President Professional Products Division

9. Alexis Perakis-Valat, President Consumer Products Division

10. Frédéric Rozé, EVP of the Americas Zone

I l. Jéröme Tixier, EVP HR and Advisor to the Chairman

12. Jochen Zaumseil, EVP Asia Pacific Zone

13. Vianney Derville, EVP Western Europe Zone

14. Alexandre P0D0ff. EVP Eastern Eurooe and Africa. Middle East

Source: Based on company documents.


L’Oréal ‘s famous advertising slogan was “Because I’m worth it.” In the mid-2000s, this slogan was replaced by “Because you’re worth it.” In late 2009, the slogan was changed again to “Because we’re worth it.” The shift to “we” was made to create stronger consumer involvement in L’Oréal philosophy and lifestyle and provide more consumer satisfaction with L’Oréal products. In 2016, L’Oréal Paris changed its slogan to “We are all worth it.” as a way by which to reflect the brand’s emphasis on diversity and efforts to be more inclusive. A 2017 L’Oréal campaign used storytelling in ads by featuring women or female celebrities, such as Winona Ryder, who have had a recent comeback from a shoplifting scandal, and noting that “Everyone loves a comeback.” and “damaged hair deserves one too.” Today, L’Oréal spends about 35% of its media budget on digital campaigns, much of which is focused on building relationships with a diverse market of consumers. The company recently partnered with several new ambassadors and buzzworthy celebrities, including male models and actors, as well as women aged 60 and over, and other new faces which reflect L’Oréal ‘s commitment to openness to all forms and ages of beauty across the globe.

Segment Data

L’Oréal is quite transparent in reporting its revenue across product lines and regions around the world. The company has four product groupings as described below:

l . L’Oréal Luxe (Luxury)—20 brands including Lancome, Giorgio Armani, Biotherm,

Kiehl ‘s, Ralph Lauren, Shu Uemura, Cacharel, Helena Rubinstein, Diesel, Viktor&Rolf, Maison Margiela, among others. As indicated in Exhibit 3, L’Oréal Luxe continues to increase market share worldwide. The Luxury Division revenues grew over 10 percent in 2017, highlighting its success in makeup and facial skincare, particularly with Lancöme. L’Oréal ‘s Luxe reported double-digit growth in Asia Pacific, with exceptionally positive figures in China, Travel Retail, and in e-commerce.

2. Consumer Products—L’Oréal Paris, Garnier, Magic, Maybelline New York, African Beauty Brands, Essie, NYX, and Niely

3. Professional Products—L’Oréal Professionnel, Kerastase, Redken and Matrix, Pureology,

Shu Uemura Art of Hair, Mizani, Essie, Carita, and Decleor

4. Active Cosmetics—Vichy, La Roche Posay, SkinCeuticals, Roger & Gallet, Sanoflore, and Cerave. As indicated in Exhibit 2, L’Oréal ‘s Active Cosmetics Division had an excellent

EXHIBIT 2 L’Oréal’s Sales by Product (000,000 euros omitted)



Operating Profit



Operating Profit

Professional Products

Consumer Products L’Oréal Luxe

Active Cosmetics

€ 3,389

€ 11,985

€ 7,674

€ 1,869

€ 689

€ 2,417

€ 1,623

€ 432

€ 3,350

€ 12,119 € 8,472

€ 2,083

€ 669

€ 2,419

€ 1,856

Source: Based on the company’s 2017 Annual Report and other documents.

2017. L’Oréal further enhanced its leadership of the worldwide dermo-cosmetics market, partly due to strong growth momentum from La Roche-Posay, the world number one dermo-cosmetics brand, and from SkinCeuticals, which for the eighth consecutive year posted double-digit growth. Of note, the United States is the top market and the largest growth contributor in the Active Cosmetics division.

Notice in Exhibit 3 that among L’Oréal’s geographical zones, Asia-Pacific and Eastern Europe saw the greatest growth in 2017. China, Thailand, Turkey, and Central Europe all saw strong growth, especially for e-commerce sales. The Latin America zone also saw nice growth, with Mexico and Argentina being the drivers there. The only zone with negative growth in 2017 is Africa/Middle East.

For QI 2018 that ended 3-31-18, L’Oréal ‘s revenues increased 6.8 percent over the prior year period, to 6.78 billion euros. The company’s four major Luxe brands (Lancome, Yves Saint Laurent, Giorgia Armani, and Kiehl ‘s) all reported growing revenues by more than 10 percent in QI 2018 versus the prior year. Geographically, L’Oréal’s grew QI 2018 revenues most strongly in the Asia Pacific Zone, especially in China. For QI 2018, L’Oréal’s four segments, l) Professional Products, 2) Consumer Products, 3) L’Oréal Luxe, and 4) Active Cosmetics, sales increased 1.9, 2.6, 14.0, and 10.2 percent, respectively.


Note in Exhibit 4 that L’Oréal ‘s revenues and net income increased nicely in 2017. All the green up arrows indicate the company is performing quite well.

Note in Exhibit 5 that L’Oréal has been paying off its long-term debt and liabilities nicely, which is good. The company is also managing its inventory especially well.

EXHIBIT 3 L’Oréal’s Sales by Region: 2017 Revenue Percent by Region

Other 17%

Other M

W. Europe 31%

Asia Pac. 25%

N. America 27%

Note: Other Markets include Latin America, Middle East, Africa, and Eastern Europe. Source: Based on the company’s 2017 Annual Report and other documents.

EXHIBIT 4 L’Oréal’s Income Statement (in millions of euros)

Income Statement



Percent Change


Cost of Goods Sold

Gross Profit

Operating Expenses


Interest Expense



Non-Recurring Events

Net Income











€ 26,024




















Source: Based on the company’s 2017 Annual Report and other documents.

EXHIBIT 5 L’Oréal’s Balance Sheets (in millions of euros)

Balance Sheet 12/31/16 12/31/17

Percent Change


Cash and Short-Term Investments €1,746 €3,047 75%

Accounts Receivable 3,942 3,923 0%

Inventory 2,699 2,495 -8%

Other Current Assets 1,659 1,554 -6%

Total Current Assets 10,046 11,019 10%

Property Plant & Equipment 3,757 3,571 -5%

Goodwill 8,793 8,872 1%

Intangibles 3,179 2,579 -19%

Other Long-Term Assets 9,855 9,298 -6%

Total Assets 35,630 35,339 -1%


Accounts Payable 4,135 4,141 0%

Other Current Liabilities 5,072 5,032 -1%

Total Current Liabilities 9,207 9,173 0%

Long-Term Debt 31 13 -58%

Other Long-Term Liabilities 1,888 1,334 -29%

Total Liabilities 11,126 10,520-5%


Source: Based on the company’s 2017 Annual Report and other documents.


Exhibit 6 provides an overview of L’Oréal as compared to some of its leading competitors. Note that L’Oréal is the largest cosmetics/fragrances firm in terms of levenue, number of employees, and net income. L’Oréal also has the highest profit margin and revenue per employee. But every day is another day, and all of these rivals strive to overtake L’Oréal anywhere and everywhere they can.

EXHIBIT 6 L’Oréal versus Rival Firms (L’Oréal numbers converted into $’s using 1 euro = $1.25)




Estee Lauder

# Employees

$ Revenue

$ Net income

% Profit Margin

$ Revenue per employee


$ Market capitalization

























8.43 278K



Source: Based on a variety of sources; as of March 15, 2018.

Estee Lauder Companies, Inc. (EL)

Headquartered in New York City, Estee Lauder has annual sales of over $12 billion and net income of over $1 billion. Estee Lauder manufactures and markets skin care, makeup, fragrance, and hair care products. The company’s products are sold in over 150 countries and territories under a number of brand names, including Estee Lauder, Aramis, Clinique, Origins, M.A.C, Bobbi Brown, La Mer, Jo Malone London, Bumble, Darphin, Ojon, Smashbox, Le Labo, GLAMGLOW, By Killian, BECCA, Too Faced, GoodSkin Labs, and Aveda.

The company is also the global licensee for fragrances and/or cosmetics sold under brand names, such as Tommy Hilfiger, Donna Karan, Michael Kors, Tom Ford, and Coach. The company sells its products in over 30,000 points of sale, consisting of upscale department stores, specialty retailers, upscale perfumeries and pharmacies, and prestige salons and spas. Estee Lauder is performing quite well with a recent annual revenue of $12.8 billion and net income of $1.08 billion.

Avon Products, Inc. (AVP)

Headquartered in New York City, Avon is the world’s largest direct-seller firm, and by far the largest direct seller of cosmetics and beauty-related items. Three big investors in Avon (Shah Capital, Barington Capital, and NuOrion Partners) are pressing the company to seek a buyer. Avon’s CEO, Sheri McCoy, stepped down as CEO on March 31, 2018. Avon’s stock price declined 50 percent in 2017 when hundreds of company stock prices increased 50 percent.

Avon is the fifth largest cosmetics and fragrance firm in the world. The company receives sales from catalogs and a website, but the vast majority of its sales come from its 6.4 million independent sales representatives in around 70 countries. Since 1892, Avon has been on the forefront of empowering women to be their own boss and be independent and become leaders in communities and business.

Avon products include cosmetics, fragrances, toiletries, jewelry, apparel, home furnishings, watches, footwear, children’s products, skincare, and gift and decorative products, nutritional products, housewares, and entertainment and leisure products. Avon owns and sells Silpada jewelry. A few well-recognized company brand names include Avon Color, ANEW, Skin-So-Soft, Avon Naturals, and Foot Works. Although a large American iconic corporation, Avon is today struggling to recover from poor management strategies that led to a CEO changeover in 2018, a new CFO in 2015 and 2017, and other substantial changes including global bribery investigations and downgrades to Avon’s credit ratings, among others.

In 2017, Avon’s revenue was $5,715.6 million, compared with $5,717.7 million in 2016 and $6,160.5 million in 2015, thus highlighting Avon’s troubled situation. Millions of motivated direct sellers in many countries are Avon’s key competitive advantage going forward.

Mary Kay, Inc.

Headquartered in Addison, Texas, (outside Dallas) Mary Kay is a privately owned cosmetic and fragrance direct selling company. Mary Kay is the sixth largest direct selling company in the world, with annual sales of about $3.5 billion. Mary Kay’s business model is very similar to the Avon business model. Founded by Ms. Mary Kay Ash in 1963, the company is famous for their pink Cadillacs, given to high-selling representatives. Richard Rogers, Mary Kay’s son, is the chairman of the board. Mary Kay products are sold in more than 40 markets worldwide, and the global Mary Kay independent sales force exceeds 3.5 million women—supported by a staff of 5,000 employees.

In 1968, Mary Kay Ash purchased the first pink Cadillac and had it repainted to match the Mountain Laurel Blush in the Mary Kay compact. Since the Cadillac program’s inception, more than 100,000 independent sales force members have qualified for the use of a Career Car or elected the cash compensation option. GM estimates that it has built 100,000 pink Cadillacs for Mary Kay. For 2012, high-sellers could select other Career Cars, including the Chevrolet Malibu, Chevrolet Equinox, Toyota Camry, and the Cadillac CTS, SRX & Escalade Hybrid—or most recently, a black Mustang.

Revlon, Inc. (REV)

Headquartered in New York City, Revlon is a cosmetics leader with brands such as Almay and Revlon ColorSilk hair color, Mitchum antiperspirants and deodorants, Charlie and Jean Naté fragrances, and Ultima Il and Gatineau skincare products. With annual net sales of around $2.3 billion, Revlon’s beauty aids are distributed in approximately 150 countries, though the United States is its largest market, generating about 55 percent of sales. Walmart is Revlon’s biggest single customer, accounting for some 17 percent of sales.

Revlon manufactures, markets, and sells cosmetics, women’s hair color, beauty tools, antiperspirants, deodorants, fragrances, skincare, and other beauty care products. Revlon products are sold and marketed under brand names, such as Revlon, including the Revlon ColorStay, Revlon Super Lustrous, and Revlon Age Defying franchises; Almay, including the

Almay Intense i-Color and Almay Smart Shade franchises; Sinful Colors in cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; Mitchum in antiperspirants and deodorants; Charlie and Jean Nate in fragrances; and Gatineau.

Revlon operates in four segments: consumer, professional, Elizabeth Arden, and other. Similar to L’Oréal, products in the Consumer Division are sold through a variety of traditional outlets such as retailer stores, and products in the Professional Division are sold mainly through salons. Products in the Elizabeth Arden division are sold through prestige retailers and specialty or high-end stores.

Revlon’s core products include its drugstore line of makeup, specialty skin care products, and salon-quality hair and beauty lines. Revlon is sold in drugstores (Walgreens and CVS) and superstores (Walmart, Target, and Ulta Beauty). Revlon’s sales were $2,334 million in 2016, a net sales increase of 22 percent.

Coty, Inc. (COTY)

Headquartered in New York City, Coty is one of the world’s leading makers of beauty products for men and women. Led by CEO Camiullo Pane, Coty is a $9.2 billion beauty company, and the number-one global leader in fragrances, number-two global leader in salon hair care, and number-three global leader in color cosmetics. Europe makes up nearly 45 percent of Coty’s sales, followed by North America at 34 percent. Sarah Jessica Parker, Jennifer Lopez, Celine Dion, Gwen Stefani, Katy Perry, and Thomas Dutronc are several celebrities that have promoted Coty. Founder of the company, Frangois Coty created his first perfume, La Rose Jacqueminot, in 1904.

Cody operates in three divisions: Consumer Beauty, Luxury, and Professional Beauty. The Consumer Beauty division sells color cosmetics, retail hair coloring and styling products, body care products, and mass fragrances primarily through hypermarkets, supermarkets, drug stores and pharmacies, mid-tier department stores, and traditional food and drug retailers, as well as its own branded e-commerce and direct-to-consumer websites. The Luxury division provides prestige fragrances, and premium skincare and cosmetics products across various regions and luxury channels, including upscale perfumeries, upscale department stores and duty-free shops, and travel retail sales channels. The Professional Beauty division offers hair and nail care, and other salon products to nail and hair salons, nail and hair professionals, and professionals stores.

Cody markets and sells its products under the Astor, Bourjois, Clairol, Coty, Covergirl, Joop!, Jovan, Lancaster, Manhattan, Max Factor, Nioxin, N.Y.C. New York Color, OPI, philosophy, Rimmel, Sally Hansen, System Professional, and Wella brands. Coty’s product lineup today ranges from moderately priced scents sold globally by mass retailers to prestige fragrances and nail polishes found in department stores.


There are other countries globally, especially in Africa and South America, that L’Oréal could engage. Brazil, for example, is where Avon derives most of its revenue, more even than from the United States. There are numerous firms that could be acquired by L’Oréal to further expand and penetrate globally, such as Avon, that are struggling financially, or even Coty, Inc. And then there are cosmetic and fragrance divisions of large firms such as Procter & Gamble that could be available if L’Oréal deemed that to be attractive. Or L’Oréal could forward integrate into the beauty salon business by acquiring a firm such as Ulta Beauty, or Great Clips that has 4,100 locations across the United States and Canada.

L’Oréal is doing really well at the moment. For calendar 2017, the company reported a record operating margin of 18 percent or 4.68 billion euros, and an EPS of 6.65 euros, an increase of 3 percent over the prior year. The company pays a 3.55 euro dividend, up 7.6 percent in 2017 from the prior year. All divisions of the company reported sales growth in 2017, especially the L’Oréal Luxe line that did really well, especially in Asia. The company’s e-commerce sales in 2017 reached 2 billion euros, an increase of 33.6 percent over the prior year.

In mid-2018, L’Oréal acquired Toronto-based ModiFace, a technology company that creates augmented reality and artificial intelligence for beauty brands such as MAC Cosmetics, LVMH-owned Sephora, and Benefit Cosmetics. Analysts say L’Oréal wants ModiFace not for the revenue it can produce but to own the firm’s technology to keep it out of the hands of other rival beauty companies. L’Oréal had worked once before with ModiFace to enhance the L’Oréal brand Vichy. ModiFace has over 30 patents and employs nearly 70 engineers, researchers, and scientistsl. L’Oréal ‘s Chief Digital Officer, Lubomira Rochet, says ModiFace will now become the heart of L’Oréal ‘s digital services research and development.

History proves that success today is no guarantee for success tomorrow. L’Oréal needs a clear strategic plan for the future. Being the biggest and the best at year-end 2017 does not guarantee prosperity in the years to come. Develop an effective 3-year strategic plan for L’Oréal.

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